CRE Market Update: State of the Nashville Multifamily Real Estate Market Q1 2019

Nashville's Multifamily Market is growing substantially. With Nashville’s population growing significantly over the past few years, the Real Estate submarket of Multifamily has seen the boost.

The National Market

The United States remains strong in employment growth, just under 2% year over year, but Nashville is above the national average at just under 4%.

There’s broad employment growth in all sectors - such as Construction (7.6%), Leisure and Hospitality (4.9%) and Government (2.5%).

Nashville’s Multifamily Market

Nashville’s Income growth is slightly above the national average at just under 4%.

Population Growth is starting to slow but is still incredibly strong overall, around just above 1.5%, whereas the U.S. Population growth is steady at roughly .6%.

Housing construction is lagging behind housing formation. Household growth is just above the apartment and single-family growth at just above 14,000.

Single Family Housing (SFH) is growing faster than rents with just under 50% cumulative growth whereas rent is just above 30%.

Vancancies are up from 8.4% in 18Q4 to 8.2% in 19Q2. Net Absorption is up from 897 units to 1,444 units. Annual Rent Growth is up from 3.0% to 3.2%. Deliveries are up from 1,600 units to 1,800 units. Units under construction are down from 9,963 to 8,362. Sales are down from $165,000/unit to $95,000/unit.

There is a steady demand for new units as Supply-and-Demand is about even, with supply up by very little with both around 2,000 units.

Vacancies continue to decline at around 8% with the national average at around 6%.

Lease rates are starting to move back up in places like the Metro Nashville where last year the average was about 16 average units leased to 20.

Vacancies are falling in many submarkets including Downtown, Bellevue, and Wilson County, but we are seeing some Vancancies rising in Williamson and Sumner Counties.

Construction is beginning to slow but is still strong overall at about 8,000 units.

Nashville is a fast-growing Metro area at roughly 7%, which is better than Denver (6%), Austin (6%) and Dallas - Fort Worth (4.7%), but is lower than places like Boston (11%) and Miami (10%).

Downtown Nashville is increasing its share of Construction, at just under 12,000 units under construction and just above 8,000 units delivered since 2016.

Construction is all across Nashville, but primarily in downtown.

A construction update sees 1200 Broadway expected to open in 20Q2 and McEwen Northside to be opened in 19Q3.

Strong income growth at just under 40% has helped to keep rents affordable at just above 30%. Rent growth continues to improve with the rent level being 6% and the growth being just about 3%.

Elevated construction has hurt Class A growth, with one, two and three Star growth at around 45% but four and five Star at around 20%.

High-End inventory is closing the gap with one, two and three Star growth at around 4% and four and five Star around 3%.

A consistent Rent Premium is evident across most submarkets while three star asking rent in the Nashville Metro is around $1,100 and four and five star rent starts around $1,500.

A submarket analysis shows Murfreesboro’s Multifamily market remains strong and active, as the annual rent growth is up to 5% and there’s a supply at around 8%.

Murfreesboro has construction such as Springfield, which was delivered in 2018 and has an 11% vacancy, with an average rent of $1,400/unit and a Lease-Up of 20 units/month. There have been 3,600 deliveries since 2014, which is 33% of Inventory.

Sumner County is dealing with some problems as there is more demand than supply in the county. Sumner County as The Edison, which was delivered in 2018 with 42% vacancy, and an average unit of $1,170/unit. There is a Lease-Up of 20 units/month. Since 2014, there have been 2,250 units delivered, which is 35% of Inventory.

Historically, 19Q1 was lower than last year, but still strong at around $200mil.

Volume and Square Footage pricing are still elevated with the annual sales volume at around $300mil and an average unit price at around $100,000.

Same Store Series is ticking up at around $160,000. Submarket pricing is up across all submarkets from the historical average. Downtown’s historical average is around $160,000/unit and is currently at around $240,000/unit.

Older Assets are driving annual sales volume, such as 865 Bellevue Apartments and Post Ridge Apartments which are priced at a total of $80.2mil at $168,000/unit. They have occupancy at 95%.

Looking Ahead

Job growth is projected to slow, with Nashville’s unemployment rate settling around 2% but employment growth falling to around 5% by 2021.

Vacancies could rise to around 9% by 2021. Rent growth could soften to under 2% by the end of 2020 and rent levels to 5.5% by the end of 2020.

All data and statistics courtesy of CoStar